After a weak first half this calendar, gold demand in the country is expected to recover in the second half on the back the festival season of Dhanteras and Diwali, the World Gold Council said.
India’s gold demand declined nearly 30 per cent in the first half of 2016 at 247 tonnes against 352 tonnes in the same period last year. Gold demand in the second half of 2015 was 513 tonnes.
Gold imports in the first half this year were down to 291 tonnes from 470 tonnes in the same period last year as regulatory challenges affected demand.
“We expect the second half to be good this year (for gold demand in India). The monsoons are good. Also, traditionally the fourth quarter (October-December) has been the best season for India when demand picks up during festivals of Dhanteras and Diwali,” said PR Somasundaram, Managing Director WGC in India.
Sharing the details of the WGC’s Q2 Gold Demand Trends report, Somasundaram noted that India’s gold demand had contracted to 97.9 tonnes in April-June from 122.1 tonnes in the same period last year.
Although Akshaya Tritiya sales provided a brief boost to demand in May, this was not enough to prevent a sharp second quarter (April-June) contraction. A sharp jump in gold price, weaker rural incomes and government regulation mainly affected gold demand during the June quarter. “Transitioning to the new regulations has not been very smooth. This has impacted demand for the organised players. The income disclosure scheme has also cast a shadow on gold demand as people have become wary of doing big-ticket spends,” Somasundaram said.
Once the income disclosure scheme window is closed (end September), it is expected that people will again spend big on jewellery, spurring the demand for gold.
The WGC report says the introduction of the additional 1 per cent excise duty (which prompted the jewellers’ strike in the first quarter) and mandating PAN (permanent account number) disclosure for purchases above ₹2 lakh acted as “headwinds”, impacting demand.
Smuggled goldAn unintended side-effect has been the increase in the flow of unofficial gold into India — partly due to attempts by trade to find ways around the regulations.
“We estimate that 40-45 tonnes of smuggled gold entered the Indian market during the April-June period despite weak demand. This is much higher than the previous quarters,” Somasundaram said.
This is significant given that the average demand for gold in a quarter is 132 tonnes. For calendar 2016, WGC estimates smuggled gold imports to go up to 140-160 tonnes, up from 120 tonnes last year.
This is the first time WGC is putting out a quarterly number for “unofficial gold” flow, he said. It plans to launch a separate report on “unofficial gold” flows into India.